Correlation Between Merchants Financial and FFB Bancorp

Can any of the company-specific risk be diversified away by investing in both Merchants Financial and FFB Bancorp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merchants Financial and FFB Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merchants Financial Group and FFB Bancorp, you can compare the effects of market volatilities on Merchants Financial and FFB Bancorp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merchants Financial with a short position of FFB Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merchants Financial and FFB Bancorp.

Diversification Opportunities for Merchants Financial and FFB Bancorp

0.82

Correlation Coefficient

Merchants Financial  FFB Bancorp

Very poor diversification

The 3 months correlation between Merchants and FFB is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Financial Group and FFB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FFB Bancorp and Merchants Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merchants Financial Group are associated (or correlated) with FFB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FFB Bancorp has no effect on the direction of Merchants Financial i.e., Merchants Financial and FFB Bancorp go up and down completely randomly.

Pair Corralation between Merchants Financial and FFB Bancorp

Given the investment horizon of 90 days Merchants Financial Group is expected to generate 0.84 times more return on investment than FFB Bancorp. However, Merchants Financial Group is 1.19 times less risky than FFB Bancorp. It trades about 0.19 of its potential returns per unit of risk. FFB Bancorp is currently generating about 0.11 per unit of risk. If you would invest  2,506  in Merchants Financial Group on August 21, 2025 and sell it today you would earn a total of  324.00  from holding Merchants Financial Group or generate 12.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Merchants Financial Group  vs.  FFB Bancorp

Merchants Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Financial Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Merchants Financial may actually be approaching a critical reversion point that can send shares even higher in December 2025.

FFB Bancorp

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in FFB Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, FFB Bancorp may actually be approaching a critical reversion point that can send shares even higher in December 2025.

Pair Trading with Merchants Financial and FFB Bancorp

The main advantage of trading using opposite Merchants Financial and FFB Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Financial position performs unexpectedly, FFB Bancorp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in FFB Bancorp will offset losses from the drop in FFB Bancorp's long position.

The idea behind Merchants Financial Group and FFB Bancorp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.